Category Archives: Ask a Money Coach

RRSP vs RESP: How to Make the Right Choice?

By Bruce Q. Thompson, B.Admin, CFP®

Family in kitchen with laptop smiling

From the moment our children are born we want the best for their future. Success is never guaranteed, but we hope to be able to offer them opportunities. And what better opportunity is there than education? So it seems like a straight forward assumption that we would contribute to a Registered Education Savings Plan (RESP).

But what about our own future? What about contributing to a Registered Retirement Savings Plan (RRSP)? Canadians are living longer, and the cost of living is always on the rise. If we don’t have a solid retirement plan, are we at risk of living in our well educated child’s basement? OK, that may be a tongue-in-cheek option, but the question of where to place our investment dollars is valid. What’s a parent to do?

The Fundamentals: What You Need to Know

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6 things to consider before investing in a rental property

By Karin Mizgala, co-founder and CEO Money Coaches Canada and the Women’s Financial Learning Centre

Holding house keys on house shaped keychain in front of a new home

The average Canadian house price hit $508,567 in March however that number is skewed by the incredibly hot real estate markets in Vancouver and Toronto. If you remove those markets from the equation the average home cost drops to $366,950. But even that lower number represents an increase of 15% in the average sales price over the last year, and coupled with low interest rates, real estate has certainly been a financially attractive investment recently.

However, there are things to consider when contemplating investing in a rental property, as I explained in a recent Globe and Mail Q&A article. Continue reading →

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Three reasons to stick with a defined benefit pension plan

Karin M byline photo

By Karin Mizgala, co-founder and CEO Women’s Financial Learning Centre and Money Coaches Canada

Retirement planning can raise a lot of questions and feel overwhelming to many Canadians, so I was very pleased when The Globe and Mail newspaper asked me to be one of the go-to experts for their Retirement Q&A section.

Here is my most recent contribution.

globe and mail

pensionQuestion from Derrick Alstein, Port Elgin, age 60:

I have a number of friends and a relative who are considering cashing in a defined benefit pension plan. I think an article on the pros and cons of a cash out strategy versus taking normal payments would be informative. Many people I know that have cashed out are taking advice from people that want to invest their money, have not done well and have had to go back to work.

Answer:

While the lump sum offered to people who consider cashing out their defined benefit pension can be very tempting, I rarely advise clients to withdraw from their pension and invest the proceeds with a financial adviser. Here’s why:

1. Ease of Management

With a defined benefit pension, your employer hires an investment company to manage the pension assets and is responsible to ensure that employees receive the monthly Feb 3 tweetpayment they are entitled to based on a formula that considers earnings history, years of service and age. You have no direct involvement in the management of the investments and there is no need for you to make any investment decisions before or after retirement. At retirement you receive a regular monthly payment from your employer for life. Simple. Most people who want to weigh the pros and cons of a lump sum withdrawal turn to their financial advisers for advice. Of the almost 100,000 financial advisers in Canada, 99% have a vested interest in directly or indirectly managing your investments. I’m not saying that it’s impossible for advisers to provide unbiased advice on whether to stay with the pension or not, but when the potential investment dollars are significant, let’s face it, it’s not easy to remain impartial. To avoid any potential conflicts of interest, it is best to consult an accountant, actuary or fee-for-service financial planner on pension decisions.

Read points 2 & 3 on the Globe and Mail website

 

 

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Money Coaches in Conversation – What you should understand about fees and financial advice

Recently Women’s Financial Learning Centre and Money Coaches Canada co-founder Karin Mizgala sat down with Money Coach Noel D’Souza to discuss the changing landscape of financial advice in Canada.

Women's Financial Learning Centre and Money Coaches Canada co-founder Karin Mizgala

MCC & WFLC co-founder Karin Mizgala

Karin: As someone in the financial industry, it’s very common to be asked by people outside the industry, to explain the different fee structures of financial advice. So, Noel, let’s start with an overview of the common compensation models available to Canadians today.

Noel: The most prevalent model we see in the industry is the commission-based advice model, where an advisor sells products, typically mutual funds or some other investment product, they may also sell insurance, and they receive a sales commission for making the sale and also quite likely receive a trailing commission which is supposed to cover on-going advice and services. Usually the client never sees the commission fees, and we’ll be discussing how that may change in the future, but usually those fees are hidden within the cost structure of the product they are buying.

The second type is fee-based. An advisor will charge the client fees based on the size of the assets under management, a percentage of the total portfolio.

The third model, which is up and coming, is the model we work under; fee-for-service. Clients pay a fee directly and explicitly to the advisor for services rendered and it’s not tied to product sales, or size of assets, in any way.

Karin: So that will sound pretty straight forward to most people, why does it become murky, what are the implications for someone seeking financial advice? What are the benefits and shortcomings of each model? Continue reading →

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Glossary: Mortgage and Equity terms

Financial literacyEvery profession, sport and hobby has its own expressions, jargon, and acronyms that can leave those less familiar with them a little lost or confused. Helping our clients understand the language of money is one of the things our coaches take pride in, because we want to ensure that we are always talking with you, not at you.

To that end, we’ve decided to start a glossary of terms we are often asked to clarify, and what better time to begin than November, which is Financial Literacy Month in Canada.

Here are four terms related to home ownership:

Term of a Mortgage vs. Amortization period 

The mortgage term is the number of years the loan is valid. Mortgage terms range from six months to 10 years. Mortgage rates vary depending on the term, usually the lower the rate the shorter the term. At the end of the term, if the mortgage is not paid off, it will be renegotiated at a new rate for a new term.

The amortization period is the number of years it will take to pay off the entire mortgage. Usually the more years over which you spread the mortgage, the smaller the monthly payment will be, but, and it’s a big but, the longer you take to pay the mortgage the more you will pay in interest over the long term. Continue reading →

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Ask a Money Coach: Which Tax Software Would You Recommend?

Tax Time

 

Around this time of year our Coaches are often asked which tax software they would recommend to individuals who would like to file their own taxes online. Here is a round-up of responses on three of the most popular options: Turbo Tax, Studio Tax and Ufile.

It is also important to note that if you are filing online you must use a program that is recognized for use on Netfile by the Canada Revenue Agency (CRA). For a list of all the recognized programs visit the CRA website. Continue reading →

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